Outsourcing vs. In-house: Which is Better?

Are you at a point where you need more help in your business?

You might be wondering whether to hire another full-time team member or outsource work. Both of these approaches have their pros and cons, and the right decision isn’t always clear.

That’s why we wrote this article — to help you make an informed decision about whether outsourcing or keeping work in-house is the right choice for you.

The difference between outsourcing and in-house

Outsourcing means that you hire outside resources to help you complete tasks or projects. These might include freelancers or agencies that specialize in performing a particular type of task or project. For example, hiring a digital marketing agency is a way to outsource your social media management.

Businesses outsource to save money and complete projects quickly.

In-house resources, on the other hand, are your existing employees — including yourself. When you handle a task or project in-house, you assign one or more of your team members to work on it.

Pros and cons of handling projects in-house

You hired your team to get things done. If you already have a great team of employees, why would you consider outsourcing?

There are plenty of good reasons to leverage the talent you already have. But your team might not be a perfect fit for everything. Consider these pros and cons.

Pros

Investing in new skills pays dividends

Every new project is a chance to upgrade your team’s skills. If you work with your in-house team, you can keep building on that foundation to get better and better results.

It makes sense to invest more time and money in training your team because most of them will stick around. Your investment pays off for a long time.

This also means that you can tackle projects that are a little bit outside of your usual expertise. If you outsource that work, you need to find someone with those exact skills. Handling it in-house means you can learn together and become more capable as a team.

You set the schedule

Whether you work from an office or your team works from home, you can set shared working hours for your whole team. That means everyone is available and ready to collaborate at the same time.

Contractors and freelancers don’t have set hours. If you need them to work with your team, it might be in a form of an asynchronous collaboration, especially if you hire someone from a different time zone.

Your team is flexible and invested

Internally handling a project ensures everyone working on it shares your company’s values. They’re invested in your company’s success because it’s directly linked with their future.

Not all in-house teams are highly engaged, but the ones that care have an advantage over outsourced talent.

Because your team cares about the outcome of a project, they’re more willing to step outside of their specialty and find creative ways to get things done. They may suggest ideas to make a project better or proactively fix issues before they become a problem.

That dedication makes up for small skill gaps because team members are more willing to figure things out on their own. The end result is that your engaged team gets more done.

Cons

Higher ongoing costs

Hiring a full-time team member is expensive. It’s also a longer commitment than outsourcing that work. When the project is done, that person expects to have the same amount of work and pay.

If you only need help for one or two projects, it might be more affordable to outsource a task or project instead of handling it in-house.

Even if a contractor’s hourly rates are higher, they should only bill you for the time they spend working on your project. You don’t pay for hours they spend doing administrative tasks, training, or waiting for the next task. There’s no obligation to give them 40 hours of work every week.

In-house team members must get paid for the hours they spend at work, whether they’re working on your project or doing something else. You’re also responsible for other expenses. On average, an employee actually costs 125% to 140% of their salary.

Companies that have to choose between hiring another team member or outsourcing work might find it more cost-effective to outsource.

Lack of necessary skills

Your employees can’t be good at everything. You might not have in-house resources that can complete a particular project successfully.

Sometimes, it’s not practical to try to take on a project that’s far outside of your team’s expertise.

Team member training might be too time-consuming or expensive. The resources you spend to learn something new take attention away from the things you can do well, and your results won’t be as good.

For key projects, it’s smart to work with someone that has the experience you need.

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Asking for too much can cause burnout

There are a limited number of hours in a workweek, and your team is probably using all of them. You can shift priorities to make room for key initiatives, but eventually, you have to decide what won’t get done.

Overtime is both expensive and exhausting. You should only rely on overtime to get things done on rare occasions. It’s not a long-term solution.

The more you ask your team to do, the less productive they’ll be. If you must decide between outsourcing work or asking your team to put in an unsustainable amount of work, choose to outsource. Your team’s health and long-term productivity are more important.

Pros and cons of outsourcing

Now, let’s look at the other side of the equation. What are the advantages and disadvantages of outsourcing work?

Pros

Cost-effectiveness

Outsourcing a task or project can be more affordable than handling it in-house.

It’s particularly cost-effective if you outsource to someone located in a country with a low cost of living. Their rates might be lower than the hourly rates you pay your in-house team.

Flexibility

Growing an in-house team is time-consuming. You need to go through a lengthy hiring process every time you want to hire a new team member.

Outsourcing work to another company can help you get the resources you need more quickly.

Their hours depend on your needs. It’s okay to assign 30 hours of work this week and 5 hours next week. If you don’t need help until the end of the month, only work with them at the end of the month.

Access to expert talent

There are plenty of freelancers and agencies out there. Most of them specialize in a particular type of project, while some can handle all sorts of projects.

It won’t be hard for you to find a competent contractor that can complete any project you have in mind. In fact, you can find subject matter experts that have in-depth, detailed knowledge that your team can’t match.

For example, your marketing team probably knows how to handle a wide range of tactics, but a contractor that specializes in nothing but Amazon sales can probably get better results in that area.

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Faster project delivery

Sometimes you just need to get a project completed quickly. Outsourcing will provide you with more resources, helping you complete a project faster.

If you work with a subject matter expert, they may finish your project in fewer total hours than it would have taken your team to do it, which can help you save money.

Reduce your in-house team’s workload

Do your in-house employees have too many tasks on their plate? Hiring outside help can be a great way to make their workload more manageable.

This often happens when you know you need to hire another team member soon, but you don’t have enough work or budget to support someone full-time. Rather than asking your current team to pick up the slack, a freelancer can lighten the load.

Cons

Lack of communication

It might be harder to know how your project is progressing when you outsource it to another company. You have less visibility and often less communication.

Most contractors and agencies handle multiple clients. Even the best communicators will rarely give you a daily check-in because it’s impractical to talk to all of their clients every day.

Most often, you will have to ask for updates. Companies can also address this concern by using time tracking software to create proof of work.

Less control

As a general rule, you’ll have less control over a project once you outsource it.

The company or a contractor/freelancer you outsource to might also not be transparent with how they’re handling the project. You give them the specifications and they come back when they’re done.

Freelancers and agencies have a hard time working with clients that want to influence every step of the process. It’s too time-consuming to try to get your feedback and make constant adjustments. If this is important to you, it’s wiser to work with your in-house team.

Negative effect on company culture

Outsourcing tasks or projects can make your employees think you’re going to replace them.

It only takes one disgruntled team member to start a rumor that you’re going to lay people off. This anxiety can harm morale and company culture.

There’s less long-term commitment on both sides

We mentioned the lack of long-term commitment as a possible advantage of outsourcing. It can be a drawback, too.

A contractor isn’t committed to your business, and you aren’t committed to their growth.

That’s fine, but it also means they don’t care about the ultimate outcome of your project. They might leave before you’re satisfied, get distracted by other clients, or put in the minimum amount of work to meet your specifications.

When to handle projects in-house

Based on the advantages and disadvantages of outsourcing, you probably have some idea of what makes sense for your project. Now, let’s look at the details.

If any of these situations apply strongly to you, it’s better to keep your project in-house.

You want to have complete control over a project

Outsourcing a project always means losing control over it to a certain extent.

When you outsource, you won’t have complete insight into how someone else is handling the project. You don’t have as many opportunities to shape how things are going, and it’s harder to change the direction once you’ve handed over the initial specifications.

If you want to have total control over a project, you should keep it in-house.

This also applies if you aren’t totally clear about what you want when you start. Your internal team is better equipped to help you figure things out as you go.

You need long-term support

Some types of projects require long-term support. Most software development projects, for example, have ongoing maintenance requirements.

Do you think you’ll need help with maintaining certain aspects of a project? If that’s the case, consider completing the project in-house.

This strategy will ensure there’ll always be someone available to help you with any issues that arise. Ideally, someone on your team will be familiar enough with the project to help new people get up to speed.

Contractors might offer long-term support, but unless you pay a retainer, you have no way to know if they’ll be available when you need them.

You’re handling sensitive information

There are a lot of situations when you don’t want specific information to be accessible outside of your company.

Maybe you want to keep a strategy or business move secret. If you’re working on something that you don’t want competitors to know about, don’t outsource it.

Projects might involve sensitive customer or team member data. When this happens, you may be able to outsource some tasks without exposing that information, but it’s safer to limit the number of people who know how that information is stored and protected.

Consider licensing requirements, certifications, and your company’s security practices. When in doubt, keep it in-house.

When to outsource

There are some situations when outsourcing is the clear winner. If any of these apply, look for a great freelancer or agency to help.

You have a short-term need

There’s a project you need to finish, and your team can’t accomplish it on their own. You can’t afford to wait for someone to have more time to step in, so you need to bring another person on board to get this done.

Once this project is finished, though, you don’t need the extra help anymore.

If you have a short-term need for more help, it’s best to pay a freelancer or contractor. That way, when the project is done, you’re not saddled with an extra expense.

Specific tasks are becoming too time-consuming

When a small task becomes a huge time-sink that distracts your team from their top priorities, it’s time to look into outsourcing it.

Successfully scaling a business means you improve operations as you go. Processes should get more manageable and streamlined, not the other way around.

Your best team members probably pick up the slack when there’s extra work to do. That’s great, but people can quickly get bogged down this way. Give your team more time to do what you hired them to do by outsourcing the things that are eating up too many hours.

One quick warning about scope:

When you hire a freelancer, contractor, or virtual assistant, they quote your rate with the expectation that they’ll only complete the tasks you agree on ahead of time. If you ask for something outside of that scope, you can get hit with expensive overages.

Start with a responsibilities agreement so that everyone is clear from the start. Use our free template to get started.

You don’t have in-house experts or specialists

There will always be projects that require expertise your team doesn’t have. In these cases, you might need to hire outside help to get things done.

In this case, you can outsource the entire project or just the tasks that are outside of your team’s usual scope.

You need to get a project completed as quickly as possible

Sometimes you’re on a tight deadline and need to complete a project as fast as possible. If you pull resources from other projects, it will just make those other projects late instead.

In this situation, it makes sense to outsource. You don’t have time to onboard a new team member and you might not need them after the project is done.

You’re on a tight budget and need your team to focus

It might seem counterintuitive, but outsourcing simple tasks can be more cost-effective than handling them in-house.

Instead of asking your team to manage tasks like data collection, moderating social media comments, or updating your website, make time for them to focus on the most profitable tasks by outsourcing.

Freelancers and virtual assistants can handle a lot of this work at a lower hourly rate. Your in-house team members that cost more per hour should do the highest value work while freelancers complete simple tasks at a lower rate.

The most commonly outsourced services

You can outsource almost any part of your business, from handling your lunch orders to executive leadership.

Some business areas are commonly outsourced. In some cases, it’s easier and more cost-effective to work with third parties. Other business areas are hard to staff because specialists are hard to find, so working with an agency or contractor is the best way to meet your needs.

Here are some of the business functions that are most often handled by third parties.

Customer support

Customer support is a necessity for every business. Whether you’re a solo entrepreneur with a growing online store or a multinational company with offices around the world, your customers expect you to help when they have questions or problems.

A lot of businesses can’t provide the level of customer support today’s consumers expect. This problem is more challenging if you have customers in a lot of different time zones.

Data entry

Data entry is perhaps the simplest task that’s performed in any business setting. In most cases, there’s no need for prior experience or training to do data entry successfully.

For a lot of businesses, it doesn’t make financial sense to pay their employees to do data entry work. Instead, they outsource data entry to companies that can provide the service at a much lower rate.

Marketing

Marketing a business in the digital age is complex. It requires knowledge of many different and distinct types of marketing, from pay-per-click advertising to inbound content marketing.

Most businesses lack the in-house resources required to execute their entire marketing strategy. That’s why they often outsource one or more parts to specialists.

Here are just some of the marketing tasks you can outsource:

• Social media marketing and management – Posting content on your social media pages, interacting with followers, and analyzing performance.
• SEO – Performing keyword research, optimizing your website for search engines, and building links.
• Email marketing – Planning and executing email campaigns, designing emails, and managing your email lists.
• Marketing strategy – Devising and executing a marketing strategy for your business.
• PPC advertising – Managing ad campaigns, creating ad copy, testing ad variations, and optimizing landing pages.

Accounting and bookkeeping

Accounting and bookkeeping are necessary. However, these tasks are also tedious and boring.

A lot of businesses outsource accounting and bookkeeping to save time — and annoyance. They also do it to save money through deductions that a skilled accountant can discover.

When deciding to outsource accounting and bookkeeping, consider which services you need. Do you only need help with preparing financial reports? Or do you want someone else to handle bank reconciliation and payroll for you?

The answer to those questions will determine how much it’s going to cost you to outsource accounting. If you’re on a tight budget, consider outsourcing some accounting services while handling others in-house.

An outsourced accountant or accounting service can take care of, among other things:

• Invoicing
• Paying bills
• Payroll processing
• Preparing financial statements
• Preparing and managing tax returns

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Content writing

Content marketing is a popular way of generating more attention for a business. But writing plenty of fresh, engaging content is easier said than done.

Most businesses don’t have the time or experienced team members to do this. That’s why they hire outside help in the form of freelance content writers.

Freelance writers can create a variety of different types of content. Some examples include:

• Blog posts
• Ebooks
• Case studies
• White papers
• Ad copy
• Technical documentation

Not all writers are equally skilled. If content marketing is a core part of your business strategy, hire someone who can do quality work at a fair price.

Graphic design

Businesses need different types of visuals developed for their marketing campaigns. However, they might not have the resources to handle all their graphic design needs.

In this situation, it helps to outsource graphic design.

A freelance graphic designer or a graphic design company can help you create:

• Website logos
• Ad creatives
• Business cards
• Infographics
• Flyers
• Social media images
• Email design

Web design

Having an online presence is a necessity for modern businesses.

Every business, however big or small, needs a website.

However, lots of small businesses don’t need an in-house web designer to meet their needs. There are plenty of web designers and web design agencies that can build a business website at a low cost.

Video editing

Video is by far the most popular type of online content among consumers. This popularity is why a lot of businesses have focused their efforts on video marketing.

However, it’s not common for small businesses to have an in-house videographer. They often outsource this task to freelance video editors or video production agencies.

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See what your outsourced talent can do.

Use our free Responsibilities Agreement template to get started right.

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Before you outsource: Consider project management software

Keeping your workflow organized is crucial, especially when you’re outsourcing. Project management software like Hubstaff Tasks can help.

Hubstaff Tasks is an Agile project management tool that supports features such as:

• Kanban boards
• Sprints
• Automated daily Stand-ups
• Checklists
• File sharing

It comes with more than 40 project templates you can use to organize your projects quickly.

The final answer: should you outsource or not?

Whether you should handle projects in-house or outsource depends on your specific needs.

Handle projects in-house if you:

• Want to have complete control over a project
• Need long-term support
• Are handling sensitive information

Opt for outsourcing if you:

• Have a short-term need
• Lack in-house specialists or experts
• Want to get a project completed quickly

Subscribe to the Hubstaff blog for more detailed guides on project management, leadership, and remote work.

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This post was originally published in June 2018. It was updated in May 2021.